Avoiding the SALT Cap with Pass-Through Entity Taxation

calendar iconOctober 28, 2021

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As soon as the Tax Cuts and Jobs Act was signed into law in 2017, state tax administrators, small business owners, and residents of states with high property tax and income tax rates began to look for ways to work around the Act’s $10,000 itemized deduction limit for state and local taxes (SALT). Typically, the owner of a partnership or S corporation pays income tax on the share of state income passed through to them from the business. However, over the last several months approximately 20 states have implemented new legislation to tax pass-through entities directly, rather than tax the individual owners. Tax Beat hosts, Brooks and Sarah, are joined by Cherry Bekaert’s Tax Partner and Leader of the State and Local Tax PracticeCathie Stanton, and Tony Konkol, Manager with the Firm’s State and Local Tax Practice, to talk about these pass-through entity tax regimes. They cover the entities and owners who can take advantage of pass-through entity taxation and address issues to consider before electing in to this approach to state taxes.

Chapter Markers:

  • 2:24: Overview
  • 4:39: How states are responding to SALT Cap
  • 8:52: IRS Notice 2020-75 paves the way for pass through entity taxation (“PTE”)
  • 17:22: Issues to consider before making opting in to PTE
  • 21:55: Methodologies and requirements for PTE
  • 24:45: Limitations
  • 28:45: Year-end tax planning and PTE

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